Henry Stow Lovejoy participated in a panel titled "Equity-Based Mortgages – Debt/Equity/Derivatives Or A Combination Thereof?" at the 2018 ABA Taxation Section Midyear Meeting in San Diego, CA

A growing number of lenders offer mortgages that are designed to share the risk and reward of depreciation/appreciation in real estate values between the lender and borrower. For the borrower to deduct payments as mortgage interest, the instrument must be a debt instrument secured by real estate.

Similarly, for the instrument to be treated as “interest in real property” (so that it can be held in a REMIC or REIT), the instrument must constitute debt. Nevertheless, the equity-based products generally comprise of: (1) traditional debt with low fixed interest, (2) contingent interest, and (3) total return swap. This panel discussed the issues surrounding these three components; whether the products should be bifurcated or integrated, and how each of the borrower and lender should treat them.